Give a separated Pennsylvania filer the unmarried tax forgiveness base

changelog.d/fix-10511-pa-forgiveness-separated-filer.fixed.md

@@ -0,0 +1 @@
+Give a Pennsylvania separate filer who lives apart from their spouse for the last six months of the year the unmarried $6,500 tax forgiveness base on their own income, and give a married separate filer who does not live apart the $13,000 base on the joint eligibility income of both spouses, including a spouse in another tax unit (72 P.S. 7304(d)(1)).

policyengine_us/parameters/gov/states/pa/tax/income/forgiveness/base.yaml

@@ -1,4 +1,4 @@
-description: Pennsylvania starts reducing its tax forgiveness when eligibility income exceeds this amount, or double for joint filers.
+description: Pennsylvania starts reducing its tax forgiveness when eligibility income exceeds this amount, or double for married claimants, including separate filers who do not live apart.
 values:
   2004-01-01: 6_500
 metadata:

policyengine_us/tests/policy/baseline/gov/states/pa/tax/income/forgiveness/pa_tax_forgiveness_rate.yaml

@@ -84,3 +84,272 @@
         state_code: PA
   output:
     pa_tax_forgiveness_rate: 0.1
+
+- name: Separated head alone in a separate unit gets the unmarried base
+  # 72 P.S. 7304(d)(1): a separate filer who lives apart from the spouse is
+  # not considered married, so Eligibility Income Table 1 applies.
+  # Base $6,500; ($10,000 - $6,500) / $250 = 14 steps; 1 - 14 * 10% < 0.
+  # Tax before forgiveness: 3.07% * $10,000 = $307, none forgiven.
+  period: 2025
+  input:
+    people:
+      head:
+        age: 37
+        employment_income: 10_000
+        is_separated: true
+    tax_units:
+      tax_unit:
+        members: [head]
+    households:
+      household:
+        members: [head]
+        state_code: PA
+  output:
+    filing_status: SEPARATE
+    pa_eligibility_income: 10_000
+    pa_tax_forgiveness_rate: 0
+    pa_income_tax_before_forgiveness: 307
+    pa_income_tax_after_forgiveness: 307
+
+- name: Separated head alone in a separate unit just above the unmarried base
+  # Base $6,500; ($7,000 - $6,500) / $250 = 2 steps; 1 - 2 * 10% = 80%.
+  period: 2025
+  input:
+    people:
+      head:
+        age: 37
+        employment_income: 7_000
+        is_separated: true
+    tax_units:
+      tax_unit:
+        members: [head]
+    households:
+      household:
+        members: [head]
+        state_code: PA
+  output:
+    filing_status: SEPARATE
+    pa_tax_forgiveness_rate: 0.8
+
+- name: Married couple in one separate unit combines incomes on the married base
+  # Eligibility Income Table 2 ("Married Claimants, even if filing separately"):
+  # joint eligibility income $10,000 + $3,000 = $13,000, base $13,000, 0 steps.
+  period: 2025
+  input:
+    people:
+      head:
+        age: 40
+        employment_income: 10_000
+      spouse:
+        age: 38
+        employment_income: 3_000
+    tax_units:
+      tax_unit:
+        members: [head, spouse]
+        filing_status: SEPARATE
+    households:
+      household:
+        members: [head, spouse]
+        state_code: PA
+  output:
+    tax_unit_married: true
+    pa_eligibility_income: 13_000
+    pa_tax_forgiveness_rate: 1
+    pa_income_tax_after_forgiveness: 0
+
+- name: Joint filers keep the married base
+  # Base $13,000; ($14,000 - $13,000) / $250 = 4 steps; 1 - 4 * 10% = 60%.
+  # Tax before forgiveness: 3.07% * $14,000 = $429.80; after: 40% = $171.92.
+  period: 2025
+  input:
+    people:
+      head:
+        age: 40
+        employment_income: 11_000
+      spouse:
+        age: 38
+        employment_income: 3_000
+    tax_units:
+      tax_unit:
+        members: [head, spouse]
+    households:
+      household:
+        members: [head, spouse]
+        state_code: PA
+  output:
+    filing_status: JOINT
+    pa_eligibility_income: 14_000
+    pa_tax_forgiveness_rate: 0.6
+    pa_income_tax_before_forgiveness: 429.8
+    pa_income_tax_after_forgiveness: 171.92
+
+- name: Cohabiting married couple filing separately keeps the married base
+  # 72 P.S. 7304(d)(1)(ii): spouses who file separately but live together are
+  # still married, so Eligibility Income Table 2 applies to both returns.
+  # Joint eligibility income $10,000 + $0 = $10,000 <= $13,000 base: 100%.
+  period: 2025
+  input:
+    people:
+      head:
+        age: 40
+        employment_income: 10_000
+      spouse:
+        age: 38
+    tax_units:
+      head_unit:
+        members: [head]
+        filing_status: SEPARATE
+        cohabitating_spouses: true
+      spouse_unit:
+        members: [spouse]
+        filing_status: SEPARATE
+        cohabitating_spouses: true
+    marital_units:
+      marital_unit:
+        members: [head, spouse]
+    households:
+      household:
+        members: [head, spouse]
+        state_code: PA
+  output:
+    eitc_spouses_lived_apart_last_six_months: [false, false]
+    pa_eligibility_income: [10_000, 0]
+    pa_tax_forgiveness_rate: [1, 1]
+    pa_income_tax_before_forgiveness: [307, 0]
+    pa_income_tax_after_forgiveness: [0, 0]
+
+- name: Cohabiting married couple filing separately combines incomes above the ceiling
+  # Joint eligibility income $10,000 + $9,000 = $19,000; base $13,000;
+  # ($19,000 - $13,000) / $250 = 24 steps; 1 - 24 * 10% < 0, so 0%
+  # (Table 2, 0 children, top column $15,250).
+  # Tax: 3.07% * $10,000 = $307 and 3.07% * $9,000 = $276.30, none forgiven.
+  period: 2025
+  input:
+    people:
+      head:
+        age: 40
+        employment_income: 10_000
+      spouse:
+        age: 38
+        employment_income: 9_000
+    tax_units:
+      head_unit:
+        members: [head]
+        filing_status: SEPARATE
+      spouse_unit:
+        members: [spouse]
+        filing_status: SEPARATE
+    marital_units:
+      marital_unit:
+        members: [head, spouse]
+    households:
+      household:
+        members: [head, spouse]
+        state_code: PA
+  output:
+    pa_tax_forgiveness_rate: [0, 0]
+    pa_income_tax_after_forgiveness: [307, 276.3]
+
+- name: Cohabiting married couple filing separately in the phase-down
+  # Joint eligibility income $10,000 + $3,500 = $13,500; base $13,000;
+  # ($13,500 - $13,000) / $250 = 2 steps; 1 - 2 * 10% = 80% on both returns
+  # (Table 2 $13,500 column).
+  # Head: 3.07% * $10,000 = $307; after 20% = $61.40.
+  # Spouse: 3.07% * $3,500 = $107.45; after 20% = $21.49.
+  period: 2025
+  input:
+    people:
+      head:
+        age: 40
+        employment_income: 10_000
+      spouse:
+        age: 38
+        employment_income: 3_500
+    tax_units:
+      head_unit:
+        members: [head]
+        filing_status: SEPARATE
+      spouse_unit:
+        members: [spouse]
+        filing_status: SEPARATE
+    marital_units:
+      marital_unit:
+        members: [head, spouse]
+    households:
+      household:
+        members: [head, spouse]
+        state_code: PA
+  output:
+    pa_tax_forgiveness_rate: [0.8, 0.8]
+    pa_income_tax_after_forgiveness: [61.4, 21.49]
+
+- name: Separated spouses living apart each use the unmarried base on own income
+  # 72 P.S. 7304(d)(1)(i)-(ii): separate returns and living apart, so neither
+  # is considered married and each uses Table 1 on their own income.
+  # Head: ($7,000 - $6,500) / $250 = 2 steps; 80%.
+  # Spouse: $1,000 <= $6,500; 100%.
+  period: 2025
+  input:
+    people:
+      head:
+        age: 40
+        employment_income: 7_000
+        is_separated: true
+      spouse:
+        age: 38
+        employment_income: 1_000
+        is_separated: true
+    tax_units:
+      head_unit:
+        members: [head]
+      spouse_unit:
+        members: [spouse]
+    marital_units:
+      marital_unit:
+        members: [head, spouse]
+    households:
+      head_household:
+        members: [head]
+        state_code: PA
+      spouse_household:
+        members: [spouse]
+        state_code: PA
+  output:
+    filing_status: [SEPARATE, SEPARATE]
+    eitc_spouses_lived_apart_last_six_months: [true, true]
+    pa_eligibility_income: [7_000, 1_000]
+    pa_tax_forgiveness_rate: [0.8, 1]
+
+- name: Separated spouses who did not live apart for six months stay married
+  # The 2025 PA-40 instructions count as married a claimant "Separated and
+  # lived apart, but for less than the last six months". Same couple as
+  # above, but the living-apart input is false: joint eligibility income
+  # $7,000 + $1,000 = $8,000 <= $13,000 base, so Table 2 gives 100%.
+  period: 2025
+  input:
+    people:
+      head:
+        age: 40
+        employment_income: 7_000
+        is_separated: true
+      spouse:
+        age: 38
+        employment_income: 1_000
+        is_separated: true
+    tax_units:
+      head_unit:
+        members: [head]
+        eitc_spouses_lived_apart_last_six_months: false
+      spouse_unit:
+        members: [spouse]
+        eitc_spouses_lived_apart_last_six_months: false
+    marital_units:
+      marital_unit:
+        members: [head, spouse]
+    households:
+      household:
+        members: [head, spouse]
+        state_code: PA
+  output:
+    filing_status: [SEPARATE, SEPARATE]
+    pa_tax_forgiveness_rate: [1, 1]

policyengine_us/variables/gov/states/pa/tax/income/forgiveness/pa_tax_forgiveness_rate.py

@@ -7,21 +7,45 @@ class pa_tax_forgiveness_rate(Variable):
     label = "PA tax forgiveness on eligibility income"
     unit = "/1"
     definition_period = YEAR
-    reference = "https://www.pa.gov/content/dam/copapwp-pagov/en/revenue/documents/formsandpublications/formsforindividuals/pit/documents/2021/2021_pa-40in.pdf#page=39"
+    reference = (
+        "https://www.palegis.us/statutes/unconsolidated/law-information/view-statute?txtType=PDF&SessYr=1971&SessInd=0&ActNum=0002.&chpt=003.&subchpt=000.&sctn=004.&subsctn=000.",  # 72 P.S. 7304(d)(1)
+        "https://www.pa.gov/content/dam/copapwp-pagov/en/revenue/documents/formsandpublications/formsforindividuals/pit/documents/2025/2025_pa-40in.pdf#page=36",
+        "https://www.pa.gov/content/dam/copapwp-pagov/en/revenue/documents/formsandpublications/formsforindividuals/pit/documents/2021/2021_pa-40in.pdf#page=39",
+    )
     defined_for = StateCode.PA
 
     def formula(tax_unit, period, parameters):
-        eligibility_income = tax_unit("pa_eligibility_income", period)
+        own_eligibility_income = tax_unit("pa_eligibility_income", period)
         person = tax_unit.members
         is_child_dependent = person("is_qualifying_child_dependent", period)
         child_dependents = tax_unit.sum(is_child_dependent)
-        # filing status affects the base, where it doubles for married claimants
+        # 72 P.S. 7304(d)(1)(i)-(ii): a claimant who files a separate return
+        # and lives apart from the spouse for all of the last six months of
+        # the year (or under a written separation agreement) is not
+        # considered married, and uses the single base on their own income
+        # (Eligibility Income Table 1). Every other married claimant, joint
+        # or separate, uses the doubled base on the joint eligibility income
+        # of both spouses (Table 2).
         filing_status = tax_unit("filing_status", period)
         filing_statuses = filing_status.possible_values
-        joint_separate = (filing_status == filing_statuses.JOINT) | (
-            filing_status == filing_statuses.SEPARATE
+        joint = filing_status == filing_statuses.JOINT
+        separate = filing_status == filing_statuses.SEPARATE
+        spouse_in_unit = tax_unit("tax_unit_married", period)
+        lived_apart = tax_unit("eitc_spouses_lived_apart_last_six_months", period)
+        unmarried_separate = separate & ~spouse_in_unit & lived_apart
+        married_claimant = (joint | separate) & ~unmarried_separate
+        # A married separate filer whose spouse files in another tax unit
+        # adds that unit's eligibility income, found through the marital unit.
+        is_head = person("is_tax_unit_head", period)
+        head_unit_income = person.tax_unit("pa_eligibility_income", period) * is_head
+        couple_income = person.marital_unit.sum(head_unit_income)
+        joint_eligibility_income = tax_unit.sum(is_head * couple_income)
+        eligibility_income = where(
+            married_claimant & ~spouse_in_unit,
+            joint_eligibility_income,
+            own_eligibility_income,
         )
-        base_multiplier = where(joint_separate, 2, 1)
+        base_multiplier = where(married_claimant, 2, 1)
         p = parameters(period).gov.states.pa.tax.income.forgiveness
         base = p.base * base_multiplier
         rate_per_dependent = p.dependent_rate